In addition to the 78 full-time and 44 contract or part-time job cuts made at Alliance Atlantis Communications earlier this month, over 30 more pink slips are expected to be handed out in broadcasting divisions this spring following crtc approval of the merged specialty channel operations.

The Canadian production giant has also determined a $45-million value to a previously disclosed one-time, non-cash charge to pre-tax income. The non-cash charge is associated with writing off a percentage of the company’s development slate as well as the harmonization of accounting practices that will now fall in line with current u.s. practices while looking ahead to significant u.s. accounting policy changes proposed for 2001.

‘We are going to rationalize the two companies’ development programs and become much more focused,’ says aac president, Lewis Rose. The revaluation of the combined development slate will mean eliminating some projects or ‘recognizing that they have limited value going forward,’ says Rose. ‘By virtue of the focus we’re undertaking, some of them have been reviewed and have been written off.’

A more detailed breakdown of the development rationalization will be available Nov. 25 with the release of the company’s second-quarter results.

The $45-million non-cash charge will be in addition to the $50-million one-time cash costs related to severance, termination and merger costs (banking fees, professional fees), of which $35 million will result in a one-time charge to pre-tax earnings. The combined after-tax charge is estimated to be $40 million, representing roughly 5% of the company’s approximate $800-million market capitalization.

The rethinking of the development slate, combined with aac’s goal of achieving ‘higher margin production as opposed to volume,’ could result in a drop in production going forward.

‘Our focus is not on growing the size of the slate, our focus is on improving the quality of the projects and enhancing the margin of those projects so ultimately the focus is on improving profitability, not chasing volume,’ says Rose. ‘That may result in a [production] reduction over time as opposed to a growth, but an improvement in the quality, because our focus is on ensuring we have control over distribution rights.’

Rose says aac has no plans to take a knife to the current production slate but rather to let shows run their course.

‘We’re not going to consciously discontinue series, but as they naturally come to the end of their life they won’t necessarily be replaced unless the replacement has substantial profitability,’ he says.

Accounting changes

The major portion of the $45-million non-cash charge is being attributed to the sizable and time-consuming task of creating a consistent application policy for the two companies’ accounting practices and estimates.

Of the new aac accounting policy, Rose comments, ‘We believe that we’ve achieved a very comprehensive and conservative approach to the company overall.’

The accounting practices will also allow for easy comparison to similar u.s. companies because they are in line with the current Financial Accounting Standards Board rules – the u.s. standard.

With the hopes of gaining more market cap from the u.s. market, aac has designed its new accounting policies to comply with fasb.

‘We have a very significant portion of our revenues and earnings generated outside of Canada. Much of that comes from u.s.,’ says Rose. ‘As we continue to grow in the u.s., we will continue to develop a capital markets presence there. In order to generate an investment profile in the u.s., we want to minimize any Canadian [accounting] differences.

But while aac’s current accounting practices are probably more conservative than those of its American counterparts, tentatively approved rule changes to u.s. film industry financial reporting standards could have a notable effect on aac’s financial results should it choose to adopt the new u.s. rules.

According to the New York Times, the new film industry accounting rules – which will come into effect in 2000 and are still subject to final approval from fasb and the American Institute of Certified Public Accountants – could cause the major u.s. studios to take $2 billion in combined write-offs.

The new u.s. rules would prevent current aggressive accounting practices that have allowed some u.s. studios to accelerate revenues from films and tv shows and delay expenses by spreading advertising and promotions costs over a number of years, avoiding an immediate dent in their bottom line, says the Times piece.

While aware of the proposed changes, Rose would not comment on the effect they might have on aac, or if the company would adopt them should they become the u.s. standard.

aac would certainly not be the only company affected by the proposed u.s. accounting policy changes. Montreal’s Cinar Corporation has a strong presence on the u.s. market.

Earlier this month, aac secured a ‘bought deal,’ equity financing worth $82.7 million. The financing will create 9% more outstanding shares and proceeds of the deal will be used to repay cash portions of the company’s restructuring costs and provide security for the $53 million of preferred shares held by Robert Lantos and Victor Loewy.

In other aac news, the company’s class b shares have been selected for inclusion in the TSE Composite Index.